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Pressure mounts on AIIB for greater clarity on green lending

The China-led Asian Infrastructure Investment Bank (AIIB) formally came into existence on January 16, but many environmental campaigners want to see greater clarity from the world’s newest multilateral development lender.

The bank’s president, Jin Liqun, has said repeatedly that the AIIB is serious about protecting the environment and limiting the human impact of development.

But many environmental groups are concerned that the bank’s draft Environmental and Social Framework document, available on its website, lacks detail and firm commitments to sustainable lending. They call for rules on lending to be made more explicit and for improved consultation with local people.

Yu Xiaogang of Chinese NGO Green Watershed told chinadialogue: “There is a gap between the stance described by Jin Liqun and the contents of that draft.” For example, at present there are no binding requirements to carry out environmental or social impact assessments before projects start.

While the framework has already undergone an initial round of public consultation, environmental groups remain dissatisfied with the outcome and are asking that the guidelines be resubmitted for further scrutiny.

Critics say that without stringent standards on what the AIIB deems to be ‘sustainable’, the bank could end up spending hundreds of billions of dollars on projects that will be a major source of greenhouse gases, pollution and deforestation for decades to come.

The AIIB is scheduled to start spending US$100 billion of raised capital on infrastructure and energy projects from the second quarter of this year, highlighting the need for urgent clarification on sustainable lending criteria, campaigners told chinadialogue.

In recent years, China has ramped up spending through its ‘One Belt One Road’ initiative to develop new trade routes and infrastructure. These new roads, ports, railways and power stations in around 60 countries could be worth US$2.5 trillion over the next few decades, according to services firm PricewaterhouseCoopers.

This has raised fears that Chinese investment will exacerbate environmental problems in central Asia and south-east Asia, where environmental oversight is regarded as weak.

Yu said that the AIIB needs to implement additional measures to ensure greater transparency and accountability. This should “apply project-by-project ,” and will benefit the future development of the bank, he said.

According to the Washington-based World Resources Institute (WRI), discussions are ongoing at board level about how to make the bank’s lending greener.

“Our hope is that the public voicing of these concerns will prompt the AIIB to take a more cautious stance on fast-tracking large scale infrastructure projects ,and instead put a premium on managing environmental and social risks associated with such investments,” said Athena Bastelleros with the WRI’s Finance Center.

Lowell Chow, East Asia researcher at the Business and Human Rights Resource Centre, said Asia urgently needs better infrastructure, but the bank’s legitimacy will ultimately be judged by its environmental and social record.

If strong standards on sustainability are applied, the bank’s investments will create huge numbers of jobs and win respect for China from other founding members, including Germany, UK and France.

Japan and the US, which wield considerable power over the World Bank and Asian Development Bank (ADB), have refused to join the AIIB.

First draft

In September 2015, the AIIB placed a draft of its Environmental and Social Framework on its website, along with a plan for consultation with stakeholders. The consultation took place in English language, via a two-hour video conferences and written submissions, between 10 September and 23 October.

Some environmental groups complained that vulnerable stakeholders in affected areas would not be able to contribute via video, and that two hours was not enough to achieve a constructive outcome.

Bai Yunwen, a researcher at Greenovation Hub, a China-based green group, told chinadialogue that she hoped to see the bank communicate effectively with stakeholders and civil society groups, with at least two rounds of consultation, either in local languages or with translation and interpretation supplied. This would make it easier for potentially affected communities to participate.

According to environmental groups, consultation on such important safeguards should last for a minimum of at least four-to-six months. In addition, minutes of the meeting should be translated into local languages and published with a thirty-day deadline for submitting comments.

Sun Yiting, Sustainable Banking and Finance Program Manager with WWF China, said the AIIB should be more open in seeking a range of opinions to further improve the draft of its sustainability criteria, in accordance with those set out by the World Bank and Asian Development Bank.

So far, more than 200 NGOs and 11 independent experts have commented on the AIIB draft.

Impact assessment

In Yu Xiaogang’s view, environmental and social impact assessments and strong accountability systems are crucial if multilateral development banks are to reduce investment risk, protect their long-term interests and show responsibility.

“The bigger an infrastructure project is, the more impact on the environment, and sometimes that impact is irreversible. The AIIB needs open and transparent disclosure mechanisms, as well as accountability systems,” Yu said.

Chow wants AIIB to go further than its competitors and ensure that those negatively affected by its projects can use litigation to seek legal redress.

Greenovation Hub said that although the AIIB’s draft framework adopts the project categories usually applied by international financial bodies, its actual management measures and standards are more lax.

Specifically, for projects in Category A – those which may have major cumulative and irreversible negative environmental and social impacts – project developers simply need to submit full documentation.

There are no binding requirements to carry out environmental or social impact assessments for projects in Category B. “This may lead to many high-risk Category B projects being approved without full assessments of environmental and social risk,” Greenovation Hub added.

According to Asian Development Bank (ADB) criteria, category A and B projects require environmental and social impact assessments to be carried out. Accordingly, the ADB’s Safeguard Policy Statement requires projects in these categories to submit environmental impact assessment reports.

Transparency

​Transparency is also lacking. According to Greenovation Hub, the AIIB draft requires clients to disclose information, but there is no obligation for the bank itself to do so.

Other critics say that in some places the language of the draft is vague. For example, when listing types of projects not suitable for funding, the ADB states clearly that “the following do not qualify for ADB financing,” while the equivalent language in the AIIB draft document is “the AIIB does not knowingly finance operations involving the following”.

“The use of ‘knowingly’ is ambiguous. If problems arise later, they can avoid blame by saying this was not done ‘knowingly’”, said Chen Xiangxue of Green Watershed. She hopes the AIIB will be clear about the industries it will not finance.

In its first year of business, it is hoped that the AIIB will hold itself to international standards on environmental and social safeguards.

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